Does it still surprise the market that politicians are willing to trade whole economies for their singular re-election goals? Surprisingly, it does. Unfortunately, I think it will continue to do so.

The fact that political risk has returned as the foremost concern of any investment strategist worth his or her charge isn’t good news. Trying to gauge the risks of political momentum is at best divination by chicken bones. Still, those bones make the soup we’re in.

The good news, despite a weaker-than-expected GDP report at month’s end, the U.S. economy is defying the odds of forecasters, the challenges of leaderless, do nothing politicians and re-escalating tensions in the oil patch. That is saying something, even if no one is the mood to listen to what is being said.

What is being said, and what I have been saying throughout the year, is that the U.S. economy remains in expansion mode. That mode is best summed up by my view that slow growth, not no growth is and is likely to remain the rule – at least for another quarter or two.

That doesn’t mean we aren’t dangerously close to a recessionary reversal. As November’s Fed minutes revealed, they’re clearly more concerned about deflationary risks than inflationary ones. I share those concerns even as I think we can avoid falling over such a cliff.

Of course, if the euro zone decides that falling over an economic cliff is worth the political gains that might be saved, we won’t be immune to the results. But I think we’d feel those results most immediately and directly in market price action, not in lasting economic damage. Moreover, I think our market would bounce back inside a quarter or two from any such bumble.

My reasoning is simple: good consumers aren’t hard to find. Here, we have been able to not only return to, but sustain economic expansion; the world’s largest consumer driven economy has recovered with 20 million or more formerly full time and better paid workers on the dole and out of the aisles. Given that each unemployed worker affects the psyche of a circle of friends and their spending behavior, I’d wager a multiplier effect that dints maybe as many as 100 million former willy nilly spenders. That makes our slow growth, not no growth recovery outright remarkable.

One more remark before I get to my December trades. Human nature has a way of not wanting to be pushed down and pessimistic forever and a day. For consumers, this translates into what I think will be a measurably better Holiday spending season than consensus forecasts have pegged. In short, fears of recession, the known euro zone quagmire, jabbering policy makers and persistent joblessness favors a kind of fatigue with all the above and one that I think is more than likely to trigger relief-by-spending.

Of course, such spending would be a temporary stimulus at best. In 2012, we enter uncharted territory for our economy and the global one. But we’re not there yet. To plot trades for this month, our seasonality charts that let us see the price behavior of past markets, sectors and asset classes result in a cautious bid on December cheer not jeer; recovery not recession.

Among the major market capitalizations, my charts present the fact that small-cap stocks, the year’s laggards so far, and the poster child of what to avoid for those who see a lump of coal as 2011’s just deserts, have demonstrated a consistent historical trend of delivering above S&P 500 market returns in December’s past. Perhaps it’s a result of small companies benefiting from back door holiday sales; buying local can favor the little guy.

The bad news is that this capitalization range isn’t for the chickenhearted, but diversification can save you from being completely plucked. Here, I like the iShares S&P SmallCap 600 Growth
IJT, +0.54%
. It diversifies across technology, healthcare, financials, industrials and consumer goods and services. I’d pair it with the SPDR DowJones Small Cap Value
SLYV, +0.29%
which weights in favor of industrials (27% of this ETF’s assets) and financials (25% of its assets). Note: diversification is one way to mollify risk and still deliver return, but to enhance your chance of the latter and optimize the former, active management from a small cap blend no-load fund like Fidelity Small Cap Stock
FSLCX, +0.47%
could be the order of the day.

If good things can come in small packages, I also like big baskets of good things. I continue to like last month’s pick: the Market Vectors Agribusiness
MOO, +0.62%
. MOO let’s you till the equipment needed to sow, and harvest what will outlive us: the trend of global spending on commodities in times of duress and epic success. Among this ETF’s top 10 holdings you’ll find Deere, Monsanto, Potash, Archer-Daniels Midland, Kubota and more. To complement this trade, I’d buy Powershares DB Agriculture
DBA, -0.65%
. It’s a basket of soft commodities. You’ll find 12.5% in each of the following: wheat, sugar, soybeans, live cattle and corn. Cocoa and coffee are each 11.11% of the ETF’s assets. Lean hogs, feeder cattle and cotton round out the lot.

Junk bonds continue to be my preferred, chicken hearted way to pay the equity markets; lending yield against the withering crop of plain vanilla bonds and presenting the potential for return advantages from relief rally rebounds to down the road inflation. The iShares iBoxx High Yield Corporate Bond
HYG, -0.17%
ETF is still my got to play in the ETF space. But like my small cap stock note above, diversification and active management from the likes of Fidelity High Income
SPHIX, +0.00%
or Vanguard High Yield Corporate
VWEHX, +0.00%
makes solid sense here.

Finally, I remain constructively bullish on the U.S. dollar, preferring the Powershares Dollar Bull UUP ETF
UUP, -0.31%
as the way to stake my contrarian stance to the theme of fear and those who monger it. I also continue to like my pairing with UUP of the Proshares UltraShort Euro
EUO, -0.90%
and the Market Vectors Coal
KOL, +0.93%
; UUP at 50% of the position and EUO and KOL at 25% each.

Make no bones about it, December isn’t shaping up to be a simple recipe for gains. (No month this year has.) We could spill in the wrong direction; with the abject failure of euro zone and U.S. politicians in the mix, scalding losses can’t be ruled out. In December, the markets could percolate on economic data and sporadic earnings news, but even they will be set against the last word of 2011 in the customary form of year-end predictions for 2012. But with slow growth still simmering here, I still think chicken soup makes sense for December … even as duck soup will likely be on 2012’s menu.

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